PEOPLE
It is becoming very obvious that the traditional order, in which the CFO concentrates on the financials, is changing as firms start to recover from the pandemic. The CFO’s role is evolving into that of a ‘Chief Value Officer’ who contributes to company performance and profitability. CFOs are now expected to be more agile in picking early trends (micro & macro) and steering the ship along with key stakeholders. Biswajit Mishra, CFO & Executive Director of Milk Mantra, one of India’s fastest-growing mass-premium dairy food companies, is a fine example of an individual who has crossed the boundaries of traditional Finance, playing a part in many strategic initiatives that have positively impacted business performance.
INSIGHT
Market interventions by central banks rarely work. When it comes to the currency, it’s the speculator that wins in the end and policy makers are left holding a lighter wallet, with depleted foreign exchange reserves. This paper will explain the logic of this hypothesis.
The subject of an alternate currency to the United States dollar has been debated for several years. However, more recently, American sanctions on Russian banks provided fresh impetus to finding a payment mechanism that is beyond the purview of the US administration. Most commentators reluctantly agree that the only candidate that checks at least some of the boxes, as a substitute to the greenback, would be the digital yuan (eCNY). Chinese policymakers are infuriated by the fact that the Belgian based Swift messaging network, the only option for international transaction settlements, remains subject to American influence. Their previous efforts to promote the yuan were dampened by capital controls, which punters found unpalatable.
IMF estimates suggest that high shipping costs will push up global inflation by 1.5 percentage points in 2022, threatening an already-slow global recovery. Even as it has moderated in recent months, the average price of shipping a 40-foot freight container remains extremely high by historical standards. The Freightos Baltic Index – the global benchmark for shipping rates – is currently in the region of USD 5,286, down from a peak of ~USD 11,000 in late 2021, but 4x its pre-pandemic levels (see Chart 1). On the crucial China-to-US-West-Coast route, the cost is down 62%, from a peak of USD 20,000 in July 2021 to USD 7,568 today. Supply and demand conditions are slowly starting to ‘normalise’ but multiple factors are still at play, keeping shipping costs at higher-than-normal levels. These include pandemic-related mobility restrictions, labour shortages, limited warehouse space, congested ports, the Russia-Ukraine war and – perhaps most importantly – the dynamics of the shipping industry. With few clear solutions in sight, as this paper explains, shipping rates will remain elevated in the medium term.
Is the world economy heading towards recession? Frankly, it is hard to see how a recession can be avoided as interest rates begin to rise and consumer appetite falters. It is true that tumbling GDP figures do not complement growing payrolls. Still, manufacturing across advanced economies has admitted to weaker scores and consumer preferences have shifted from buying home products to travel and entertainment. In Europe, rising fuel prices have damaged spending in other areas. The flip side is that both higher interest rates and jumping commodity prices will reduce demand and eventually stabilise the world economy in the longer term. It is the intervening period of adjustment that we have to worry about. That is where the ‘recession’ will occur.
Think Tank
Covid-19 had a huge impact on CFOs and ongoing changes in the regulatory, economic and technological environment continue to bring about new disruptions. On a personal level, a key challenge facing CFOs is doing justice to the multiple expectations placed upon them. To keep pace, they will need to reorient themselves. Finance leaders are burdened not only with their traditional responsibilities around accounting, reporting and risk management but are also called upon to support initiatives around organisational transformation, technology adoption, cyber security and ESG. They are also expected to support business growth in the midst of a relentless war for talent. At recent India CFO Forum sessions in Delhi, Pune and Bangalore, CFOs from across industries came together to share their challenges and offer inputs on how to manage them, in a series of lively discussions filled with inputs and anecdotes. This paper summarises some of the key takeaways.
India’s consumption story is anchored in rising income levels, a growing millennial population, a burgeoning middle class and fast-improving connectivity. While these secular trends remain resilient, there are challenges too. Competition is emerging from new and unexpected sources, cost pressures are hurting profitability, consumers are becoming less brand-loyal and social media has added many layers of complexity to mass communication. While the market opportunity remains attractive, it requires a nuanced and robust strategy. At a recent session of the India CEO Forum in Delhi, we sought to carry out a critical re-assessment of the Indian consumer market and the approach companies should adopt, through the experiences of two veteran business leaders. Kanwal Jeet Jawa, Chairman and Managing Director of Daikin Airconditioning India, has driven remarkable success for his brand in a highly competitive market, in a short period of time. Rajeev Chaba, President and Managing Director of MG Motor India, has disrupted the Indian automobile market in a start-up-like setting.
India could become a trillion-dollar manufacturing powerhouse by FY28, with favourable tailwinds placing it on a steep growth trajectory. A combination of factors such as supply chain diversification (China+1), sectoral advantages and government initiatives (PLI schemes) are fuelling this shift. But to truly harness the opportunity, the country will have to deal with a complicated tangle, including streamlining supply chains and building a strong ecosystem of knowledge and talent partners. What are the gaps in India’s manufacturing ecosystem and how effective are current efforts addressing them? What steps can business leaders take at an individual company level to make their India manufacturing more efficient and competitive? At a recent India CEO Forum Session in Pune, Guruprasad Mudlapur, Joint Managing Director and Chief Technology Officer of Bosch India Limited and Dr Ravi Bhatkal, Managing Director, Element Solutions India, examined the manufacturing opportunities in India and debated the issues that come in the way of realising India’s potential.
More than just a profit-generating engine, the modern corporation is expected to be a sustainable organisation. The reasons for adopting sustainability go beyond regulatory compliance or simply ‘looking good.’ While developing an ESG strategy is hard because of the sheer number of factors to be considered, operationalising it is even harder. At a recent session of the India CEO Forum in Chennai, we hosted Prashanth Doreswamy, President and CEO, Continental India and Nitin Bakshi, Vice President, Global Supply Chain Strategy and Deployment at Schneider Electric, to examine the best practices for building upon the principles of sustainability and incorporating them into the organisation’s DNA.
The Ministry of Commerce and Industry recently released new guidelines under Rule 43A for work from home (WFH) for companies located in Special Economic Zones (SEZs). Among other things, the rule allows for 50% of the workforce to work from home while also enshrining certain rights of workers to request for WFH. On a related note, the Development of Enterprise and Service Hubs (DESH) Bill proposes significant reforms in the regime for export-oriented units and SEZs. What is the scope of coverage of these changes and what are the implications for business? At a recent joint session of the India CEO, CFO and CHRO Forums in Hyderabad, Gautam Khattar, Principal at PwC, provided a perspective on these changes.
Post Covid, the partnership dynamic between CFOs and CHROs has changed permanently. On the one hand, attrition and culture issues have taken centre-stage, putting unprecedented pressure on CHROs. On the other, CFOs are having to cope with talent management and leadership challenges that they perhaps previously relegated to the backburner. At a recent joint session of the India CFO and CHRO Forums in Chennai, we hosted two veterans representing both sides of the partnership. Ganesh Shenoy, CFO at MTR Foods and Jacob Jacob, Group CHRO at Malabar Group, examined how these two professionals can support each other and how organisations can better leverage their combined expertise.
With the US interest-rate cycle reversing, the rupee recently fell to new lows against the dollar as investors flew to the safety of the greenback. The RBI hopes to contain the currency’s decline by raising domestic interest rates. However, this has created a double-whammy for corporate and retail borrowers, who will have to grapple with higher debt-servicing costs. What is the outlook for the currency markets going forward, and what are the RBI’s choices as it seeks to manage the so-called ‘impossible trinity’ of inflation, interest rates and exchange rates? At recent sessions of the India CFO Forum in Bangalore, Chennai and Hyderabad we invited Manoj Goel, Managing Director and Head of Corporate Sales, Markets and Securities Services, HSBC India to offer a perspective on these issues.
In an era of dramatic change, leading Finance functions are moving fast to deliver value to the organisation. For that, Finance must balance its key priorities: cost reduction, capital structuring, strong controls and efficient operations. Coromandel – one of India’s pioneering and leading agri-solutions providers – has demonstrated strong performance in the last two years. The Finance function, under the able guidance of Jayashree Satagopan, Coromandel’s Executive Vice President and Chief Financial Officer, has played a crucial role in enabling this by generating new efficiencies, managing risks, reducing debt, generating free cash flows and promoting strong governance
Analysts agree that US interest rates will hover around 4.75% to 5% by March 2023. Inflation seems to have become stickier than what Federal Reserve officials may have previously expected and so, rate hikes will continue. Jerome Powell, the Fed’s head has clearly stated that until inflation falls, his task remains unfinished. The problem for Mr Powell arises from the generous spends by the US administration. The USD 2 trillion package approved by Congress, on the recommendation of the White House, will create demand pressures and in the absence of rising supplies, prices will continue to harden. Manufacturers take much longer to expand capacities than governments do to spend money. The real issue is that a lot of these funds, whilst having been allocated, are yet to be spent by various states in America. When they spend, they will add to demand and so to higher prices. Worsening the situation are handouts and tax rebates offered to ease pressures of higher living costs on households. California, for instance, is depositing USD 1,300 in the bank accounts of tax payers. Several other states have taken recourse to similar pranks, including tax rebates. Consequently, the impact of higher interest rates on demand stands negated. Basically, in America and elsewhere, fiscal and monetary policies are pulling in opposite directions. This is bad news for the rest of the world.